Mobile Network Access for Mvnos Market Assessment
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Mobile Network Access for MVNOs Market Assessment Version 1.0 30 January 2015 Prepared for: Cartesian: Mobile Network Access for MVNOs Version History Version Date Author Changes Distribution Approval 1.0 30/1/2015 Cartesian Final version incorporating UCC feedback UCC T Twinemanzi Confidentiality This document and the information contained herein are private and confidential, and are solely for the use of the Uganda Communications Commission. Copyright The contents of this document are copyright © 2015 Cartesian Ltd. All rights reserved. The information contained herein is the property of Cartesian and is provided on condition that it will not be reproduced, copied, lent, or disclosed, directly or indirectly, nor used for any purpose other than that for which it was specifically furnished. Cartesian Ltd. Registered in England and Wales. Registered Number: 03230513 Registered Office Address: Descartes House, 8 Gate Street, London WC2A 3HP United Kingdom Copyright © 2014 Cartesian Ltd. All rights reserved. 1 Cartesian: Mobile Network Access for MVNOs Table of Contents 1. Executive Summary ................................................................................................................ 4 Conclusions of SMP assessment ......................................................................................... 5 2. Introduction ............................................................................................................................ 5 3. Relevant market definition and description ........................................................................... 6 4. Market Performance Assessment .......................................................................................... 7 Demand for MNA ................................................................................................................ 7 Penetration of MVNO services in the retail market ............................................................ 9 Potential for Market Growth in the retail market .............................................................. 9 Prices (Cost of Access) ....................................................................................................... 10 Service Quality ................................................................................................................... 11 Innovation ......................................................................................................................... 11 5. Market Structure Assessment .............................................................................................. 12 Market Concentration ....................................................................................................... 12 Network Effects and Externalities ..................................................................................... 13 Barriers to entry ................................................................................................................ 14 Sunk Costs ......................................................................................................................... 14 Economies of Scale ............................................................................................................ 14 Economies of Scope .......................................................................................................... 15 Extent of Vertical Integration ............................................................................................ 15 6. Market Conduct Assessment ................................................................................................ 15 Scale and Ability to Access Resources ............................................................................... 15 Control of Essential Upstream Inputs ............................................................................... 15 Access to Sales and Distribution Channels ........................................................................ 16 Transparency ..................................................................................................................... 16 Ease of Consumer Switching ............................................................................................. 17 Countervailing Buyer Power .............................................................................................. 17 Evidence of Dynamic Competition .................................................................................... 17 Joint Dominance ................................................................................................................ 18 7. Basic Market Conditions ....................................................................................................... 18 Technology ........................................................................................................................ 18 Cost Conditions ................................................................................................................. 20 8. Overall Conclusion of SMP assessment ................................................................................ 21 Copyright © 2014 Cartesian Ltd. All rights reserved. 2 Cartesian: Mobile Network Access for MVNOs List of Figures Figure 1: Number of Subscriptions and Market Share in Uganda by MNO, (2014 Q3) ............ 8 Figure 2: Mobile Revenue Forecast in Uganda, 2011 – 2019.................................................... 9 Figure 3: Mobile Subscriptions Forecast in Uganda, 2011 – 2019 .......................................... 10 Figure 4: Price Terms for K2-Orange MVNO Agreement, 2014 .............................................. 11 Figure 5: Mobile Subscriptions Market Share in Uganda, 2011 – 2014 .................................. 12 Figure 6: Market Concentration (HHI) in Uganda Retail Mobile Services, 2011 – 2014 ......... 13 Figure 7: Simplified Architecture of Full MVNO ...................................................................... 19 Figure 8: Simplified Architecture of Light MVNO .................................................................... 20 Copyright © 2014 Cartesian Ltd. All rights reserved. 3 Cartesian: Mobile Network Access for MVNOs 1. Executive Summary This document sets out an assessment of whether or not there is effective competition in the market for mobile network access for MVNOs, (the “MNA” market), particularly whether or not one or more of the mobile network operators (MNOs) have significant market power (SMP) in the supply of mobile network access to mobile virtual network operators (MVNOs). A firm or group of MNOs with SMP have limit entry or raise the cost of entry of MVNOs into the markets of retail mobile services, which would either increase prices above and/or reduce output below the competitive level. It follows that consumers will benefit less in a market where MNOs exercise SMP compared with a MNA market in which competition is effective. MNA refers to the provision of access to a mobile operator’s network and systems for the purpose of hosting an MVNO. The services in this market are supplied on a national basis to licensed mobile CSPs without mobile network and systems infrastructure (i.e. MVNOs). Currently there is only one MVNO in Uganda, which is K2 Telecom, and it has an MNA agreement with the Orange. In addition to Orange, other MNOs operating in Uganda include MTN, Airtel, Uganda Telecom, and Smart Telecom. In our view, the other MNOs have less economic incentive to supply MNA to an MVNO than Orange. This assessment is based on the following factors: Orange has a relatively small number retail customers, which means that an MVNO provides Orange with an opportunity to grow the total number of customers (Orange retail customers + K2 retail customers) carried on its network; There are limited risks of cannibalisation as Orange has a small retail market share; We believe Orange has spare network capacity which it can make available to an MVNO; and consequently, Hosting an MVNO can be expected to deliver a net increase in revenues and profit. In contrast, the fact that MTN and Airtel have a relatively large customer base implies that they are at greater risk of losing these customers to an MVNO. Furthermore, they may have less spare network capacity as a result of carrying more customers. Smart Telecom is a new entrant with a small customer base, but it is more likely to target the same customer base that a MVNO new entrant would, and its network may not be sufficiently developed to carry an MVNO. Finally, Uganda Telecom's network is likely to be less attractive to an MVNO than that of the other MNOs. This is primarily due to its lack of a national data network, which would inhibit the creation of competitive retail offerings. With respect to the demand of MNA by MVNOs, there appears to be little or no demand beyond K2, which has already entered the market. In summary, the current scope of the MNA market consists of one MVNO, which is K2, and one MNO, which is Orange. It should be noted, however, this is a "narrow" definition of the market. It could be argued that the scope of the market should also include MTN and Airtel, because, even though they currently do you supply MNA services, they could do so, and might have the incentive to do so in the long run, should their circumstances change. That is, a Copyright © 2014 Cartesian Ltd. All rights reserved. 4 Cartesian: Mobile Network Access for MVNOs "broader" definition of the market would include MTN, Airtel and Orange on the supply side,